Merrill May Take $15B More in CDO/B&C Hits

Merrill Lynch & Co. may take additional writedowns of up to $15 billion on its collateralized debt obligations and subprime investments when it announces earnings this week, according to various analyst reports. Merrill, which is slated to announce earnings Jan. 17, would not comment on the reports. (In the third quarter, it took a $7.9 billion hit on CDOs and subprime assets.) According to a note put out by Sandler O'Neill, many "wild cards" exist for Merrill. "Estimating CDO/subprime writedowns is quite subjective given the range of marks we have seen from peers," said Sandler. "Our current estimate of $10 billion represents an estimated markdown to $0.40 on the dollar from [Merrill's] starting exposure levels. While this markdown is arguably quite aggressive, certain peers have been even more aggressive in putting these issues behind them. For example, we estimate that Morgan Stanley marked its exposure in the range of $0.25 on the dollar." Sandler said if Merrill takes a $15 billion charge in the fourth quarter, "this would represent a net writedown to approximately $0.22 on the dollar."

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